Dairy producers have warned that the EU faces a butter supply crisis by the end of the year, as changing demand and market imbalances send prices to a historic high.

Peder Tuborgh, CEO of Arla Foods, one of the world’s biggest dairy cooperatives owned by 12,500 farmers across the EU, told Reuters on Friday (25 August) that “There has been a scarcity of milk in the whole world after the very low prices last year. […]It will not at all be possible to meet demand up to Christmas.”

Farmers cut their output following a sharp fall in milk prices last year, as the end of the EU’s milk quotas threw the market off kilter.

Tuborgh said shortages of milk, cream and butter were pushing up prices “significantly”. In September Arla will increase the price it pays to farmers for the third consecutive month to 38.3 euro cents per kilo.

Changing demand, not shortage

Butter is currently 150% more expensive than it was one year ago, at €612/100kg, and the shortfall on the EU market is expected to reach 60,000 tonnes by the end of the year. But the Commission has insisted this is not down to a shortage of milk but to changing demand within the dairy sector.

“For the month of June, production increases in 19 member states more than offset decreases in nine others (including France and Germany),” Commission sources told EURACTIV.com. The EU executive expects overall EU milk production to be around one million tonnes higher this year than in 2016.

“The butter situation results from strong competition for the fat component of milk,” the EU official said. “It is mainly due to milk fat being directed to cheese production to meet strong demand for cheese, whose manufacture offers better returns than butter production.”

Europe’s agri-cooperatives called on the Commission on Tuesday (22 August) to increase transparency in the food supply chain and enact EU legislation to protect food producers from the unfair trading practices of their economically stronger partners.

“The food chain needs to work better”

Another reason for the shortfall in butter supply, according to Pekka Pesonen, the secretary-general of the association of EU farmers and agri-cooperatives Copa and Cogeca, is the booming export market in the US, where consumers are increasingly choosing butter over margarine.

Pesonen stressed that farmers wanted to satisfy demand for milk fats while not adding to price-depressing surpluses of other milk products such as skimmed milk powder.

“What also needs to be resolved is the correlation between the butter price and the price the producer gets. Producer prices have not risen as much as prices for butter. The food chain needs to work better,” he said.

The European Commission launched on Wednesday (16 August) a public consultation on how to improve fairness in the EU’s food supply chain, in which small farmers are often at a disadvantage compared to powerful middlemen.